Pages

Tuesday, February 5, 2013

A Woman's Touch Increases Risk-Taking

Imagine this: your momentary touch on
another person's shoulder changes how likely that person is to accept financial
risk. Just an instant tap and a person engages in more risky behavior. This
would have huge implications for financial planners, salespeople and a variety
of other professional.

Through a variety of experiments, the researchers tested their
hypothesis, which read:

…certain
forms of physical contact will evoke a sense of security in experimental
participants, and that this sense of security, in turn, will increase their
willingness to make risky financial decisions.

The results are dramatic and pretty darn remarkable. In the
experiments, the researchers found significant impact in the willingness of
test subjects who were touched on the shoulder to accept greater financial risk
than those who only experienced a handshake. One experiment showed a nearly 70%
increase in the amount the touched subjects were willing to put at risk.

However, the person touching the test subject was an important
factor in determining if this increased risk-taking actually occurred. The
researchers determined that risk-taking decisions were increased only when a
woman touched the subject’s shoulder, with no impact when a man was the person
touching. Whether the test subject was male or female had no impact.

Remembering Mom

But why would this occur? The researchers theorized that the
reason risk taking increased following a woman's touch was due to an increased
sense of security. Basically, when momentarily patted on the shoulder by a
woman, maternal memories are engaged which increase our sense of security. We
recall mom’s safe and secure touch. This increased security then leads us to
feeling more comfortable with financial risk, which results in taking more
risk.

Levav and Argo tested this mechanism in the final experiment of
their research. In this experiment, they found a strong tie to "sense of
security" and risk-taking behavior. For three test groups that were rated
as feeling secure, the willingness to take financial risk was higher than the
groups rated as feeling insecure.

Dangerous Stuff

This research could have widespread and powerful implications for
financial planners. I can picture the kind, friendly female financial planner
greeting a client with a handshake and a friendly touch on the shoulder. This
planner may have inadvertently primed the client to make more risky financial
decisions during the meeting than they may have made otherwise.

Perhaps the client then agrees to a higher equity position in a
portfolio than they might later be comfortable with, leading to anxiety and
sleepless nights. Maybe the client ends up blaming the planner when the
portfolio behaves in a more volatile manner than the client is expecting. This
small touch could lead to misunderstanding, unhappiness and even risk of losing
a client.

More cynically, I might suggest that professionals involved in
selling higher risk financial products could intentionally use this touch
mechanism to influence people's willingness to purchase. A client known to have
feelings of insecurity and fear could be primed with a light touch at the
beginning of a sales presentation or meeting, changing the dynamics for the
rest of the meeting. This might not even be done with nefarious intent, but
simply to urge a client to make a decision the professional believes to be
appropriate.

Small Scale

It's important to note
that this is only one study and rather small scale. Each experiment only
included a few hundred test subjects. There is potential that the study was
flawed or that the subjects simply weren't representative of how most people
would react. However, as the study notes, the impact of touch and risk-taking
behavior has been suggested in other studies, although not in the context of financial risk-taking. There does
seem to be something to this.

It's important that financial planners understand this type of
mechanism. What the planner may view as a friendly gesture, as a way of
connecting with clients on a personal level, can actually change the client's
behavior. This may not be a bad thing, but it needs to be understood by any
professional working in a client's best interest.